Record Surge In Rent Delinquency: Up 7% In October, Totaling 37% For U.S. SMBs

TREND TRACKER | DATA INSIGHTS | RENT REPORT -- Boston, MA, October 28, 2022: Due to ongoing economic challenges, small business owners' ability to pay their full rent on time in October took a major hit based on a new Alignable poll. In fact, the U.S. rent delinquency rate among small businesses jumped 7% in just one month, marking the largest, most rapid increase in 2022. 

In September, rent delinquency was at a six-month low, as optimism for Q4's earning potential was high and some small business owners reported increased sales.

But now, a month later, 37% of small business owners in the U.S. were unable to pay their rent in full and on time in October, compared to just 30% in September.  

The reasons cited by poll-takers include:

• higher rents for 51% of SMBs
  
• the cumulative, negative impact of more than a year of high inflation, which has absorbed most sales gains
• recessionary fears
• steeper-than-usual gas prices (rising yet again)
• ongoing increases in supply chain costs 
• rising labor expenses and shortages, and
• a slowdown in consumer spending.

In fact, 59% of small business owners taking this poll reported that consumers are spending less this month than last. 

Canadian Delinquency Reaches 42%

And while the situation is discouraging in the U.S., it's even more daunting in Canada, where 42% of small business owners said they couldn't make October rent, up 1% from September. 

All of these findings are part of Alignable's October Rent Report, based on data collected among 4,789 randomly selected small business owners from October 15, 2022 to midnight last night, October 27, 2022.  

Other data insights are based on historical polls among at least 100,000 additional small business owners over the past year, yielding charts like the following, which show the rent delinquency roller coaster ride SMBs across many different industries have endured.

Let's start with the two industries that saw a slight improvement in rent delinquency -- just 1% better than September's rate:

• 42% of Gyms couldn't pay rent in Sept., but this month that figure was 41%
• Likewise, the October rent delinquency rate for Musicians and Artists was 37%, down 1% from 38%, in September. 

But most of the other industries we track closely really saw a decline in small business owners' ability to pay their October rent in full and on time. 

Tough Times: Educators, Car Dealers, Restaurants & Retail

Looking at this chart, you can see how many industries are above the national U.S. average of 37% -- which is already quite high when you compare it to many other months over the past 2.5 years. 

Small businesses in the education sector are leading the pack, yet again, but jumping to 57% (up 13% from 44% last month).

Not far behind, we have two more records that were broken in this study -- for the automotive sector and restaurants. Both reached new rent delinquency highs, tying for second place this month at 49%. This is the highest rent delinquency rate either sector has experienced in 2022. 

Small business owners who run car repair shops and auto dealerships say they're still dealing with supply chain issues ranging from the high prices for metals and electronics, to the scarcity of inventory for some products and parts their customers need to fix their vehicles. 

Plus recessionary times when money is tight are problematic for big-ticket purchases like new cars. All of these factors are hurting small businesses in the automotive sector this month.

Restaurants' Rent Delinquency Hits New Heights For 2022

Most restaurants are far from being fully recovered, earning as much monthly as they did prior to COVID. And based on the latest rent statistics, restaurants have hit yet another hurdle in their constant struggle to bounce back.

Nearly half of all restaurants (49%) couldn't pay their rent in full and on time in October, up 13% from 36% in September. 

We're still hoping for a burst of consumer activity in November and December to help offset many of the financial issues restaurants have faced, but we'll have to see what next month's poll and other economic indicators tell us. 

Unfortunately, some restaurateurs have shared that they are seeing fewer people eating out, largely because their customers don't have the extra disposable income to cover frequent dining at restaurants.

Retail & Transportation Take A Hit, Too

All eyes are on retail right now -- and those eyes aren't exactly smiling, especially when it comes to rent delinquency. 

Some 43% of all retailers say they couldn't cover their October rent in full this month, up 12% from last month. Beyond that, 43% is close to the highest rent delinquency they've had all year, topped only by July's figure of 44%. 

And the transportation category is on the rent delinquency hot seat this month, too, jumping 8% from September, landing at a rate of 46%. 

Reduced consumer spending activity and higher than usual gas prices continue to plague drivers for Lyft, Uber, taxi companies, and the like.

Added operational expenses and labor shortages felt by trucking companies are also behind the 46% rent delinquency rate. 

Increased Interest Rates & A Troubled Housing Market

Real estate mavens and construction companies had more trouble paying the rent this month than last, especially those in real estate, where their delinquency numbers increased by 10 percentage points in October (from 27% in September to 37% this month).

Given the state of the housing market in many regions with increased interest rates and falling prices, this development is not surprise. 

Construction companies took a bigger hit earlier in the year, but they, too, saw a slightly higher rent delinquency number this month than last -- 39% now vs. 38% in September.

What's Happening In Key States & Provinces? 

Moving beyond our look at different sectors, it's always interesting to see how small businesses in various states and provinces are dealing with the struggle to pay their rent. And October's figures are definitely raising a few eyebrows. 

Let's look at Canada first. As I noted above, 42% of all small business owners polled in October said they couldn't pay their full rent on time, up 1% from last month. And that figure is 5% higher than the U.S. average. 

Here's how rent delinquency looks in the provinces where we have the largest number of survey respondents:

• British Columbia: 48% couldn't pay rent, up 15% from last month.
  
• Ontario: 40% is the rent delinquency rate, up 1% from 39% in Sept.
• Alberta: 35% couldn't pay rent in Oct., down 15% from Sept. (There's the silver lining in this report). 

In the U.S., most states' rent delinquency rates were way up compared to September, but we did have a few where the situation has improved. Let's go to the chart below, which tracks everything since December 2021. 

Seven states are higher than the already-high national average of 37%:

• Massachusetts leads the list in October, with 51% of SMBs there reporting they couldn't pay their rent in full and on time. That's the worst rent delinquency rate they've experienced all year, up 15% from September and up 18% from August. 
• Not far behind, New Jersey weighs in with a record-breaking rent delinquency rate of 49%, up 22% from last month and much higher than any other month since at least Dec. 2021. 
• New York's SMBs also broke a 2022 record for rent delinquency, with 45% unable to pay their October rent, up 6% from last month.
• California's small business owners tied their record for the worst rent delinquency month this year -- with 44% saying they couldn't afford it in October. 
• Pennsylvania broke a 2022 record this month, too, with 44% of its SMB owners saying they couldn't make their October rent. Their rent delinquency rate DOUBLED from September's, which was 22%. 
  
• Florida's small business owners had a rough month with rent in October, as well, as 39% couldn't afford it, up 16% from Sept.
• And Texan SMB owners didn't fare much better, as 38% couldn't handle their rent, up 14% from Sept. 

While these figures are very discouraging for small business owners in these states, there are two that saw some improvement: Illinois and Ohio, which were down by 7% and 9%, respectively.  

This month, only 32% of SMBs in Illinois couldn't pay their full rent; in Ohio, that percentage was just 22%. 

To see more specific data from Alignable's October Rent Report related to additional industries, states, or provinces, please contact me at chuck@alignable.com. 

To review past poll results, go to the Alignable Research Center. 

About The Alignable Research Center

Alignable is the largest online referral network for small businesses with 7 million+ members across North America. 

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.